Tuesday, 8 September 2015

FedEx bids for TNT - market control or fair play?

Last month, delivery titan FedEx made a bid to acquire rival company TNT, with an offer of $4.8 billion. As a result, the European Commission launched an investigation to determine if FedEx would violate regulations by dominating the market—specifically, the delivery of small packages in some European countries.

So why does FedEx's domination of the European market matter to the Commission?

Healthy competition

The principle behind the regulations of the European Commission is one of healthy competition. FedEx and TNT are two of four giant global delivery companies—the other two are UPS and DHL. If FedEx acquire TNT, the concern is that they will become too powerful and risk controlling too much of the market.

In 2012, UPS made a similar bid, attempting to purchase TNT for $6.8 billion. Antitrust regulators rebuffed this attempt because it risked ‘duopoly'. This is because at the time DHL was considered the only viable competition.

Is it really an issue?

FedEx insists that it's not the same situation as last time. They say they don't have a large market share in Europe, and therefore they won't disrupt market dynamics with the acquisition. Currently their market share in Europe is only 5%, one of the smallest, while TNT's is third place with 12%, after DHL and UPS. If the deal is made, the FedEx-TNT merger would put them in second place.

Some industry experts, such as Roger Sumner-Rivers of ParcelHero, who spoke to Forbes, believe that the merger will actually result in stronger competition in Europe and around the globe. The idea is that as TNT will make up for FedEx's weakness in Europe, while FedEx will bolster TNT's less strong American network.

This is different from the proposed UPS-TNT merger, where UPS already had a strong European presence and would have bagged 30% of the market.

To be continued...

FedEx's offer expires at the end of October. Pending regulatory approval, the transaction would be made in the first half of 2016. The EU will make their decision by mid-January—an extension of the original timescale.

We'll be keeping up with news of the merger. To stay apprised, you can follow industry updates on the Transglobal website.